Summary
Application: Gourmet Delights
States :
Les Délices Gourmands, a high-end pastry shop, wants to determine the optimal selling prices for its desserts to maximize its margins. Here is the data for their famous chocolate cake:
- Purchase price (excl. VAT): €15
- Variable costs per unit: €2
- Quantity sold: 500 units
Work to do :
- Calculate the selling price excluding VAT to obtain a markup rate of 30%.
- Determine the sales price including tax by applying 20% VAT.
- Calculate the gross unit margin.
- What is the overall margin on sales?
- If Les Délices Gourmands wishes to increase its markup rate to 40%, what should the new selling price excluding tax be?
Proposed correction:
-
To obtain a markup rate of 30%, we use the formula: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, €15 ÷ (1 – 0,30) = €21,43.
The selling price excluding VAT should be €21,43 to achieve a mark-up rate of 30%. -
The sales price including tax is calculated by adding VAT to the sales price excluding tax: sales price including tax = sales price excluding tax x (1 + VAT).
Replacing, €21,43 x 1,20 = €25,72.
The sales price including tax is therefore €25,72. -
The gross unit margin is calculated with: Unit margin = PV excluding tax – (PA excluding tax + Variable costs).
Replacing, €21,43 – (€15 + €2) = €4,43.
The gross unit margin is €4,43.
-
To obtain the overall margin, use: Overall margin = Unit margin x Quantity sold.
Replacing, €4,43 x 500 units = €2.
The overall margin on sales is €2. -
For a markup rate of 40%, use: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, €15 ÷ (1 – 0,40) = €25.
The new selling price excluding VAT should be €25.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Mark rate) |
| Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
| Unit Margin | Unit margin = PV excluding VAT – (PA excluding VAT + Variable costs) |
| Overall Margin | Overall margin = Unit margin x Quantity sold |
Application: Tech Innovators
States :
Tech Innovators is about to launch a new mobile application and needs to determine their pricing strategies. They estimate that, for launch, the intellectual purchase price of each application is €10, with fixed development costs of €50 for the year. They expect to sell 000 units.
Work to do :
- Calculate the selling price excluding tax required to ensure a margin rate of 50%.
- If the selling price excluding tax is set at €25, determine the actual margin rate.
- What should be the expected turnover excluding tax to cover fixed costs if the sale price is €25 excluding tax?
- Estimate the total margin generated if all units are sold at €25 excluding VAT.
- What is the variation in the margin rate if the number of sales reaches 25 units at the same selling price excluding VAT?
Proposed correction:
-
Use the formula: PV HT = PA HT ÷ (1 – Margin rate).
Substituting, €10 ÷ (1 – 0,50) = €20.
The required selling price excluding VAT is €20. -
The formula for the margin rate is: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Replacing with a PV excluding tax of €25, ((€25 – €10) ÷ €10) x 100 = 150%.
The actual margin rate is 150%. -
The net turnover required to cover the costs is: CA = PV HT x Quantity.
Turnover = €25 x 20 = €000.
The expected turnover excluding tax must be €500.
-
The total margin is calculated by: Total margin = (PV HT – PA HT) x Quantity.
Replacing, (€25 – €10) x 20 = €000.
The total margin generated is €300. -
With 25 units sold, the total margin becomes (€000 – €25) x 10 = €25.
The margin rate is not affected by the change in quantity sold, but the total profit increases to €375.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Margin rate) |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Turnover | CA = PV HT x Quantity |
| Total Margin | Total margin = (PV HT – PA HT) x Quantity |
App: Green Earth Apparel
States :
Green Earth Apparel, an eco-friendly clothing company, is looking to optimize its sales prices for its spring/summer collection. Here is the company's data for a bamboo t-shirt model:
- Purchase price: €8
- Additional production cost per unit: €2
- Projected quantity for one season: 1 units
Work to do :
- Find the selling price excluding VAT if the cost redemption rate is 40%.
- Calculate the profit generated per unit.
- Determine the markup rate if the selling price excluding tax is set at €18.
- If Green Earth Apparel wants to reduce its production costs by 10%, what would be the new impact on the selling price while maintaining the same markup rate?
- What is the strategic implication of reducing production costs on overall profitability?
Proposed correction:
-
Use the formula: PV HT = PA HT x (1 + Redemption rate).
By replacing, €8 x (1 + 0,40) = €11,20.
The selling price excluding VAT must be €11,20. -
The profit per unit is: Unit profit = PV excluding VAT – (PA excluding VAT + Production cost).
For €18, €18 – (€8 + €2) = €8.
The profit generated per unit is €8. -
The formula for the markup rate is: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, ((€18 – €8) ÷ €18) x 100 = 55,56%.
The markup rate is 55,56%.
-
If the production cost is reduced by 10%, the unit cost becomes €1,8.
The new impact requires a calculation to maintain the same markup rate by modifying the initial PV HT = €18 x (€8 + €1,8) ÷ (€8 + €2) = €19,08.
The new impact is a potential adjustment of the selling price excluding tax to €19,08. -
Cost reduction has a beneficial effect by potentially increasing the total net margin while providing better competitive pricing.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT x (1 + Redemption rate) |
| Unit Profit | Unit profit = PV excluding tax – (PA excluding tax + Production cost) |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Fresh & Pure Juices
States :
Fresh & Pure Juices, a company selling organic juices, wants to assess the financial impact of its latest price adjustments. One of their flagship products, mango juice, has the following data:
- Production cost: €1
- Overhead costs: €0,5 per unit
- Expected quantity sold: 10 units
Work to do :
- If the current selling price excluding VAT is €3, calculate the contribution per unit.
- Determine the total contribution.
- What is the break-even point in units if fixed costs are €15?
- Propose a new selling price excluding VAT to improve the total contribution by 20%.
- Analyze the strategic implications of a price increase on competitiveness in the organic juice market.
Proposed correction:
-
The unit contribution is: Unit contribution = PV excluding tax – Total unit cost.
Total unit cost = €1 + €0,5 = €1,5.
For PV excluding tax of €3, Unit contribution = €3 – €1,5 = €1,5. -
The formula for total contribution is: Total contribution = Unit contribution x Quantity.
For €1,5 x 10 = €000. -
The break-even point is determined by: Break-even point = Fixed costs ÷ Unit contribution.
For €15 ÷ €000 = 1,5 units.
The break-even point is 10 units.
-
To improve the total contribution by 20%, we are looking for 1,2 x €15 = €000.
Unit contribution required = €18 ÷ €000 = €10.
New PV excluding tax required: €1,8 + €1,5 = €3,3. -
Raising the price can reduce demand and competitiveness, but compensating by valuing the product, emphasizing quality and uniqueness can strengthen its position in a premium segment.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit Contribution | Unit contribution = PV excluding tax – Total unit cost |
| Total Contribution | Total contribution = Unit contribution x Quantity |
| Break even | Break-even point = Fixed costs ÷ Unit contribution |
Application: EcoLight Systems
States :
EcoLight Systems, a specialist in energy-efficient lighting solutions, is preparing a new range of LED lamps. The expected costs include:
- Unit cost: €12
- Unit packaging cost: €0,8
- Target quantity: 5 units per quarter
Work to do :
- If EcoLight aims for a margin rate of 60%, determine the selling price excluding VAT.
- Calculate the unit margin generated.
- Get the potential overall margin if all units are sold.
- Evaluate the impact of a 5% cost reduction on unit margin.
- Consider how EcoLight could use these savings to optimize its market strategy.
Proposed correction:
-
Using PV HT = PA HT ÷ (1 – Margin rate).
Total price = €12 + €0,8 = €12,8.
For a rate of 60%, €12,8 ÷ (1 – 0,60) = €32.
The required selling price excluding VAT is €32. -
For the unit margin: Unit margin = PV excluding tax – Total cost.
Unit margin = €32 – €12,8 = €19,2. -
The overall margin is calculated by: Overall margin = Unit margin x Quantity.
Total margin = €19,2 x €5 = €000.
-
Reducing costs by 5%: New total unit cost = €12,8 x (1 – 0,05) = €12,16.
New unit margin = €32 – €12,16 = €19,84. -
EcoLight could use these savings to invest in additional promotions or offer temporary discounts to improve its market share while maintaining profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Margin rate) |
| Unit Margin | Unit margin = PV excluding tax – Total cost |
| Overall Margin | Overall margin = Unit margin x Quantity |
Application: Luxe Leather Co.
States :
Luxe Leather Co., a luxury leather goods company, wants to determine pricing strategies for its new collection of calfskin wallets. Here are the costs:
- Manufacturing cost per unit: €35
- Indirect charges per unit: €5
- Projected sales quantity: 2 units
Work to do :
- Calculate the selling price excluding VAT to achieve a markup rate of 45%.
- Find the net margin per unit.
- Estimate the total possible revenue if all units are sold at the calculated price.
- If the objective is to lower the selling price while aiming for a markup rate of 38%, what would be the new contribution to the unit margin?
- Discuss the strategic implications of a changed price positioning for Luxe Leather Co.'s image.
Proposed correction:
-
Use the formula: PV HT = PA HT ÷ (1 – Mark rate).
Total costs = €35 + €5 = €40.
€40 ÷ (1 – 0,45) = €72,73.
The PV excluding tax must be €72,73 for a markup rate of 45%. -
The net margin per unit is: Net margin = PV excluding tax – Total cost.
Net margin = €72,73 – €40 = €32,73. -
Total turnover is calculated as: Total turnover = PV excluding tax x Quantity.
Total turnover = €72,73 x 2 = €000.
-
For a markup rate of 38%, apply: PV HT = PA HT ÷ (1 – 0,38).
PV excluding tax = €40 ÷ (1 – 0,38) = €64,52.
New contribution to the unit margin = €64,52 – €40 = €24,52. -
A change in pricing strategy could impact the brand's premium perception and exclusivity, but could attract a broader segment while increasing sales volume.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Mark rate) |
| Net Margin | Net margin = PV excluding tax – Total cost |
| Total turnover | Total CA = PV HT x Quantity |
App: Digital Learning Hub
States :
Digital Learning Hub, an online education service provider, is planning to launch a new training module. The costs associated with each module are:
- Unit development cost: €50
- Marketing costs per unit: €10
- Sales target: 3 modules
Work to do :
- What should the selling prices be excluding tax to obtain a margin rate of 70%?
- Calculate the profit margin per module sold.
- Determine the potential overall margin if all modules are sold.
- What impact would a cost increase of €5 per module have on the total margin?
- Consider the potential effect of increasing the marketing budget on sales and margins.
Proposed correction:
-
Using the formula: PV HT = PA HT ÷ (1 – Margin rate).
Total costs = €50 + €10 = €60.
With 70% margin, €60 ÷ (1 – 0,70) = €200.
The selling price excluding VAT must be €200. -
Profit margin per module: Unit margin = PV excluding tax – Total cost.
So, Unit Margin = €200 – €60 = €140. -
Overall margins: Overall margin = Unit margin x Quantity.
So, Overall Margins = €140 x €3 = €000.
-
With cost increase: New total cost = €60 + €5 = €65.
New unit margin = €200 – €65 = €135.
New total margin = €135 x €3 = €000.
Impact = €420 – €000 = €405 less. -
A larger marketing budget could potentially increase sales if it results in better customer reach, thus delivering increased positive margins, but must be justified by a cost-benefit analysis.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Margin rate) |
| Margin Unit | Unit margin = PV excluding tax – Total cost |
| Overall Margin | Overall margins = Unit margin x Quantity |
Application: Spirulina Health
States :
Spirulina Health, a company that produces spirulina supplements, wants to analyze its costs and margins for its flagship product. Here is the information for one box:
- Manufacturing cost: €4
- Logistics cost: €1
- Planned production quantity: 7 boxes
Work to do :
- Calculate the selling price excluding tax to achieve a margin of 55%.
- Determine the gross margin per box.
- Estimate the total turnover if 90% of the boxes are sold.
- What is the new total cost per box if logistics costs increase by 20% and what is the effect on margin per box?
- Analyze the implications of increasing logistics costs on Spirulina Health's strategy.
Proposed correction:
-
Apply PV HT = PA HT ÷ (1 – Margin rate).
Total costs = €4 + €1 = €5.
With a margin of 55%, €5 ÷ (1 – 0,55) = €11,11.
Therefore, the selling price excluding VAT must be €11,11. -
Gross margin per box: Gross margin = PV excluding tax – Total cost.
Gross margin = €11,11 – €5 = €6,11. -
Sales figures for 90% = 7 x 000 = 0,90 boxes.
So, CA = €11,11 x 6 boxes = €300.
-
Total cost with 20% increase in logistics costs:
New logistics cost = €1 + (0,20 x €1) = €1,20.
New total cost = €4 + €1,20 = €5,20.
New margin = €11,11 – €5,20 = €5,91.
Effect = €6,11 – €5,91 = €0,20 less per unit margin. -
An increase in logistics costs could force a readjustment of sales prices or compensate with reductions in other costs, affecting their price competitiveness and would require a careful examination of the cost-benefit ratio.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Margin rate) |
| Gross margin | Gross margin = PV excluding tax – Total cost |
| Turnover | CA = PV HT x Quantity sold |
Application: Solar Energy Solutions
States :
Solar Energy Solutions, specialized in the installation of solar panels, aims to set a competitive price while maximizing its margins. The costs for a lot are:
- Unit cost of panels: €200
- Installation cost: €50
- Sales target: 1 lots
Work to do :
- Determine the selling price excluding VAT to obtain a markup rate of 35%.
- Calculate the margin on each lot sold.
- Estimate the total potential sales if all lots are sold.
- If installation costs increase by 15%, how would that affect unit margin?
- Consider what strategic adjustments Solar Energy Solutions might consider to maintain profitability in the face of increasing costs.
Proposed correction:
-
Use the formula PV HT = PA HT ÷ (1 – Markup rate).
Total costs = €200 + €50 = €250.
For a rate of 35%, €250 ÷ (1 – 0,35) = €384,62.
Therefore, the selling price excluding VAT will be €384,62. -
Unit margin: Unit margin = PV excluding tax – Total cost.
Margin: €384,62 – €250 = €134,62. -
Total sales = PV excluding VAT x Quantity.
Total sales = €384,62 x 1 = €500.
-
If installation costs increase by 15%:
New installation cost = €50 + (0,15 x €50) = €57,50.
New total cost = €200 + €57,50 = €257,50.
New unit margin = €384,62 – €257,50 = €127,12.
Margin impact = €134,62 – €127,12 = €7,50 reduction per batch. -
Solar Energy Solutions will need to re-evaluate its costs and explore strategies such as negotiating with suppliers, optimizing processes or finding new markets to offset the increased costs while remaining competitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PV HT = PA HT ÷ (1 – Mark rate) |
| Unit Margin | Unit margin = PV excluding tax – Total cost |
| Total turnover | Total sales = PV HT x Quantity |